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business
intermediate accounting

Questions and Answers of Intermediate Accounting

Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share,
Wilco Corporation has the following account balances at December 31, 2012Prepare Wilco’s December 31, 2012, stockholders’ equity section.
McNabb Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2012. (a) Assuming that total dividends declared in 2012
Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding. (a) What is meant by a stock split effected in the form of a
Indicate how each of the following accounts should be classified in the stockholders’ equity section. (a) Common Stock (b) Retained Earnings (c) Paid-in Capital in Excess of
On March 1, 2013, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2013, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first
On January 1, 2013, Nichols Company issued for $1,085,800 its 20-year, 11% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were
Crocker Corp. owes D. Yaeger Corp. a 10-year, 10% note in the amount of $330,000 plus $33,000 of accrued interest. The note is due today, December 31, 2012. Because Crocker Corp. is in financial
Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective-interest method. Furthermore, she cannot understand why GAAP
Presented below are four independent situations. (a) On March 1, 2013, Wilke Co. issued at 103 plus accrued interest $4,000,000, 9% bonds. The bonds are dated January 1, 2013, and pay interest
On December 31, 2012, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2016. Faital Company’s credit
On April 1, 2012, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of
Presented below are selected transactions on the books of Simonson Corporation.May 1, 2012 Bonds payable with a par value of $900,000, which are dated January 1, 2012, are sold at106 plus
In each of the following independent cases the company closes its books on December 31. 1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2012. The bonds pay interest on September 1 and
Holiday Company issued its 9%, 25-year mortgage bonds in the principal amount of $3,000,000 on January 2, 1998, at a discount of $150,000, which it proceeded to amortize by charges to expense over
Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Good-Deal offered a low down payment and low car payments for
Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Good-Deal offered a low down payment and low car payments for
Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to
The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2006, and the subsequent interest payments and charges. The company’s
Vargo Corp. owes $270,000 to First Trust. The debt is a 10-year, 12% note due December 31, 2012. Because Vargo Corp. is in financial trouble, First Trust agrees to extend the maturity date to
Using the same information as in E14-22 and E14-24, answer the following questions related to American Bank (creditor).Instructions (a) Compute the loss American Bank will suffer under this new
Use the same information as in E14-22 above except that American Bank reduced the principal to $1,900,000 rather than $2,400,000. On January 1, 2016, Barkley pays $1,900,000 in cash to American Bank
Using the same information as in E14-22, answer the following questions related to American Bank (creditor).Instructions (a) What interest rate should American Bank use to calculate the loss on
Strickland Company owes $200,000 plus $18,000 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2012, Strickland’s business deteriorated due to a faltering regional
At December 31, 2012, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2015. The second is a $6,000,000 bond issue which
On January 1, 2012, Durdil Co. borrowed and received $500,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature,
Presented below are two independent situations: (a) On January 1, 2013, Spartan Inc. purchased land that had an assessed value of $390,000 at the time of purchase. A $600,000,
On January 1, 2013, McLean Company makes the two following acquisitions. 1. Purchases land having a fair value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face
Friedman Company had bonds outstanding with a maturity value of $500,000. On April 30, 2013, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these
On June 30, 2004, Mendenhal Company issued 12% bonds with a par value of $600,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2012. Because of
On January 2, 2007, Prebish Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2016. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds
Pawnee Inc. has issued three types of debt on January 1, 2012, the start of the company’s fiscal year. (a) $10 million, 10-year, 13% unsecured bonds, interest payable quarterly. Bonds were
On January 1, 2012, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2012, and mature
On June 30, 2012, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective-interest method to amortize bond premium or discount. The
Presented below are three independent situations. (a) Chinook Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $15,000; (2)
Spencer Company sells 10% bonds having a maturity value of $3,000,000 for $2,783,724. The bonds are dated January 1, 2012, and mature January 1, 2017. Interest is payable annually on January
Assume the same information as in E14-4, except that Foreman Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of
Foreman Company issued $800,000 of 10%, 20-year bonds on January 1, 2013, at 102. Interest is payable semiannually on July 1 and January 1. Foreman Company uses the straight-line method of
Presented below are two independent situations. 1. On January 1, 2012, Divac Company issued $300,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1,
Presented below are various account balances. (a) Bank loans payable of a winery, due March 10, 2016. (The product requires aging for 5 years before sale.) (b) Unamortized premium on
Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2013, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at
McCormick Corporation issued a 4-year, $40,000, 5% note to Greenbush Company on January 1, 2013, and received a computer that normally sells for $31,495. The note requires annual interest payments
Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on January 1, 2013, and received cash of $47,664. The implicit interest rate is 12%. Prepare Samson’s
Coldwell, Inc. issued a $100,000, 4-year, 10% note at face value to Flint Hills Bank on January 1, 2013, and received $100,000 cash. The note requires annual interest payments each December 31.
Wasserman Corporation issued 10-year bonds on January 1, 2013. Costs associated with the bond issuance were $160,000. Wasserman uses the straight-line method to amortize bond issue costs. Prepare the
Teton Corporation issued $600,000 of 7% bonds on November 1, 2013, for $644,636. The bonds were dated November 1, 2013, and mature in 10 years, with interest payable each May 1 and November 1. Teton
Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and
On January 1, 2013, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest
Devers Corporation issued $400,000 of 6% bonds on May 1, 2013. The bonds were dated January 1, 2013, and mature January 1, 2015, with interest payable July 1 and January 1. The bonds were issued at
The Colson Company issued $300,000 of 10% bonds on January 1, 2013. The bonds are due January 1, 2018, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare
The following two independent situations involve loss contingencies.Part 1Benson Company sells two products, Grey and Yellow. Each carries a one-year warranty.1. Product Grey—Product warranty
Presented below is a note disclosure for Matsui Corporation.Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of
On February 1, 2013, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely
Andretti Inc. issued $10,000,000 of short-term commercial paper during the year 2012 to finance construction of a plant. At December 31, 2012, the corporation’s year-end, Andretti intends to
Dumars Corporation reports in the current liability section of its balance sheet at December 31, 2012 (its year-end), short-term obligations of $15,000,000, which includes the current portion of 12%
Rodriguez Corporation includes the following items in its liabilities at December 31, 2012. 1. Notes payable, $25,000,000, due June 30, 2013. 2. Deposits from customers on equipment
Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2013. 1. Its line of amplifiers carries a 3-year warranty against defects.
You are the independent auditor engaged to audit Millay Corporation’s December 31, 2012, financial statements. Millay manufactures household appliances. During the course of your audit, you
Garison Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Garison uses two sales promotion techniques—warranties and
Polska Corporation, in preparation of its December 31, 2012, financial statements, is attempting to determine the proper accounting treatment for each of the following situations. 1. As a
On November 24, 2012, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,000,000 were
Sycamore Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30
To stimulate the sales of its Alladin breakfast cereal, Loptien Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand puppet. In 2013, the
Alvarado Company sells a machine for $7,400 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers.
Dos Passos Company sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform periodic services
Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2012, the corporation
Below is a payroll sheet for Otis Import Company for the month of September 2012. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8%
Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also
Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also
Presented below is information related to Leland Inc.Instructions (a) Compute the following ratios or relationships of Leland Inc. Assume that the ending account balances are representative
Vogue Company’s condensed financial statements provide the following information.Instructions (a) Determine the following for 2012.(1) Current ratio at December 31.(2) Acid-test ratio at
Costner Company has been operating for several years, and on December 31, 2012, presented the following balance sheet.The net income for 2012 was $25,000. Assume that total assets are the same in
Presented below are three independent situations. 1. Marquart Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees.
Bassinger Company purchases an oil tanker depot on January 1, 2012, at a cost of $600,000. Bassinger expects to operate the depot for 10 years, at which time it is legally required to dismantle the
Presented below are three independent situations. Answer the question at the end of each situation. 1. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s
Moleski Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2012, Moleski Company purchased 8,800 premiums at 90
Selzer Equipment Company sold 500 Rollomatics during 2012 at $6,000 each. During 2012, Selzer spent $30,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions
Winslow Company sold 150 color laser copiers in 2012 for $4,000 apiece, together with a one-year warranty. Maintenance on each copier during the warranty period averages $300.Instructions (a)
Allison Hardware Company’s payroll for November 2012 is summarized below.At this point in the year, some employees have already received wages in excess of those to which payroll taxes apply.
The payroll of Delaney Company for September 2012 is as follows. Total payroll was $480,000, of which $140,000 is exempt from Social Security tax because it represented amounts paid in
On December 31, 2012, Santana Company has $7,000,000 of short-term debt in the form of notes payable to Golden State Bank due in 2013. On January 28, 2013, Santana enters into a refinancing agreement
On December 31, 2012, Alexander Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2013. On January 21, 2013, the company issued 25,000 shares of its common stock
Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50¢. The block sets cost Wynn $1.10 each to purchase and 60¢ each to mail to
Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2012, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent
Streep Factory provides a 2-year warranty with one of its products which was first sold in 2012. In that year, Streep spent $70,000 servicing warranty claims. At year-end, Streep estimates that an
Calaf’s Drillers erects and places into service an offshore oil platform on January 1, 2013, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of
Scorcese Inc. is involved in a lawsuit at December 31, 2012. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare
Mayaguez Corporation provides its officers with bonuses based on net income. For 2012, the bonuses total $350,000 and are paid on February 15, 2013. Prepare Mayaguez’s December 31, 2012, adjusting
Kasten Inc. provides paid vacations to its employees. At December 31, 2012, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare
Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2012, for $18 each. Prepare Sport Pro’s August 1, 2012, journal entry and the December 31, 2012, annual adjusting entry.
What factors must be considered in determining whether or not to record a liability for pending litigation? For threatened litigation?
Under what conditions should a contingent liability be recorded?
How does unearned revenue arise? Why can it be classified properly as a current liability? Give several examples of business activities that result in unearned revenues.
Under what conditions should a short-term obligation be excluded from current liabilities?
Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of
Where can authoritative IFRS guidance related to intangible assets be found?
After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb. The shopping center would have opened
Montana Matt’s Golf Inc. was formed on July 1, 2011, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans
Information concerning Sandro Corporation’s intangible assets is as follows. 1. On January 1, 2012, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an
Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it

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